July 30, 2020 / 9:27 AM / 5 days ago

Japan slashes GDP forecasts, expects biggest contraction in decades this fiscal year

TOKYO (Reuters) - Japan sharply downgraded its gross domestic product forecasts for this fiscal year, expecting the world’s third-largest economy to suffer its biggest contraction in over two decades amid the fallout of the coronavirus pandemic.

The government expects the economy to shrink 4.5% this fiscal year to March 2021 compared with January’s forecast for 1.4% growth. That would be the biggest contraction since comparable data became available in 1994.

The economy could contract about 5% if there is a second large-scale coronavirus outbreak overseas, according to the government, which unusually gave forecasts for various scenarios mirroring what some international organizations have done.

Japan’s economy is expected to suffer a sharp contraction in the second quarter as the coronavirus hit global growth and the nation’s state of emergency forced people to stay home and businesses to close.

The dismal forecasts underscore policymakers’ concerns about a deep economic recession, but also raises the prospect of more government support, after it already delivered $2.2 trillion worth of stimulus this year.

The economy is expected to rebound with a 3.4% growth in the next fiscal year ending March 2022, according to the latest estimates.

Private sector economists in a Reuters poll expected Japan’s economy to contract by a steeper 5.3% this fiscal year and expand 3.3% next fiscal year. [ECILT/JP]

Under the baseline scenario, consumer prices, including volatile fresh food and energy costs, are forecast to fall 0.3%this fiscal year - far below the Bank of Japan’s 2% inflation target - and only rebound 0.5% in the next fiscal year.

The unemployment rate meanwhile is seen rising 3.2% this fiscal year, as the coronavirus outbreak hits firms, and to ease to 2.7% in the fiscal year ending March 2022.

Reporting by Kaori Kaneko; Editing by Ana Nicolaci da Costa

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